Report 2018-112 Recommendation 11 Responses

Report 2018-112: California Department of Veterans Affairs and Department of General Services: The Departments' Mismanagement of the Veterans Home Properties Has Not Served the Veterans' Best Interests and Has Been Detrimental to the State (Release Date: January 2019)

Recommendation #11 To: Veterans Affairs, Department of

To monitor whether lessees are current on payments, CalVet should track payment compliance for all lease payments that it receives and promptly follow up with lessees that do not pay as required. This should include collecting sufficient records from lessees that pay rent based on a percentage of sales to calculate the amount that each is required to pay to ensure that the lessees are making the correct rent payments.

Annual Follow-Up Agency Response From November 2022

CalVet's Commercial Leases policy has provided a defined process for monitoring lease payments. CalVet continues to have two tenants that pay rent based on percentage of sales. CalVet performs a payment compliance review on the sales information provided by these tenants, which consists of:

1. The AAFES store worksheet with a screenshot from their respective point of sale (POS) system to verify the rent amount calculated.

2. The Vintners Golf Club signed certification letter with their financial information to verify the worksheet for the rent amount calculated.

CalVet has held discussions with our Chief Counsel and has coordinated efforts with the Department of General Services (DGS) to ensure the one tenant that was in rent payment default no longer occupies leased spaces. CalVet confirms the notice of default and demand for payment of rents were provided to this tenant and the operating agreement is being terminated.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From December 2021

CalVet continues to strengthen the process for monitoring lease payments and maintaining compliance for all lease payments. In doing so, CalVet will:

1. Ensure the documentation received from lessees paying rent based on a percentage of sales is sufficient to appropriately calculate the lease payment due and collected.

2. Enhance the follow-up action process which will include written notification to tenants that fail to pay on rent due.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From October 2020

A documented set of procedures for the process on tracking and collecting lease payments has been drafted by CalVet's State Asset Manager. The formalized process will demonstrate how lease payments are tracked and recorded. Currently, CalVet continues to maintain a file on each leased property and use a matrix to trace lease payments and collection of updated materials. An evaluation of sales revenue continues to be performed on a periodic basis.

Documented evidence:

CalVet's Commercial Tenant Rent Tracking Policy, draft policy 7912v.1

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

CalVet provided evidence of a tracking process for lease payments, but explained that it has not yet formalized that process. To ensure that CalVet collects all lease payments that it is owed, and that it collects the appropriate amount, CalVet must develop and implement formal procedures for doing so. Until CalVet demonstrates that it has implemented such procedures, we will not consider this recommendation to be fully implemented.

1-Year Agency Response

CalVet's State Asset Manager at the Veterans Home of California - Yountville maintains a file on each leased property, containing a checklist of all required documentation, and monitors the status. This employee also maintains a matrix of all expiration dates for components such as a license or insurance policy, and a calendar tracking lease payments and collection of updated materials. Additionally, the State Asset Manager is working closely with the Golf Course operator to evaluate their sales revenue and ensure rent payments are aligned with these figures in accordance with the payment formula.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

CalVet provided evidence of a tracking process for lease payments, but has not yet formalized that process. To ensure that CalVet collects all lease payments that it is owed, and that it collects the appropriate amount, CalVet must develop formal procedures for doing so. Until CalVet develops such procedures, we will not consider this recommendation to be fully implemented.

6-Month Agency Response

CalVet agrees with and is implementing this recommendation. As mentioned in a previous update, staff met with one lessee identified in the report to review accounting records. Additionally, staff are working on a schedule and tracking tool as well as internal procedures to improve payment monitoring. CalVet also hired a new State Asset Manager earlier this year and they are working with Headquarters staff and CalVet's information services division to complete this workload.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

CalVet agrees with and is implementing this recommendation. Staff have met with one lessee identified in the report to review accounting records and are considering procedural changes to improve payment monitoring. Further, a new State Asset Manager has been appointed who will monitor payment compliance as a primary responsibility.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-112

Agency responses received are posted verbatim.